HP will merge its printer division into its PC business to cut costs

Hewlett-Packard today announced the merger of its Imaging and Printing Group (IPG) and its Personal Systems Group (PSG) in what it called an effort to drive profitable growth for the entire company.

The two businesses will be combined into a new unit called the Printing and Personal Systems Group, headed by Todd Bradley, the executive vice president of PSG since 2005.

The move, widely rumored earlier in the week, reflects the dimming future of the printer business relative to the PC business. While printer sales are expected to grow 1% to 2% in the next few years, the PC market will expand by about 5%, according to IDC.

HP said that by merging the PC and printer units, it will streamline its supply chain, achieve cost savings will be better able to reinvest in the business.

"This combination will bring together two businesses where HP has established global leadership," said CEO Meg Whitman. "By providing the best in customer-focused innovation and operational efficiency, we believe we will create a winning scenario for customers, partners and shareholders."

Among other restructuring moves announced Wednesday, HP will merge the Global Accounts Sales organization with the rechristened HP Enterprise Group, headed up by David Donatelli. The business includes enterprise servers, storage, networking and technology services.

Under the plan, Vyomesh "VJ" Joshi, who has run HP's print business for the last 20 years, will step down, and Bradley, head of the PC group, will run the combined division.

HP has yet to confirm the move, though it has not denied it either. The Wall Street Journal, citing unnamed sources, said the change would be announced Tuesday. Reuters also reported that a move was imminent. If the announcement is made, it's likely to come before HP's annual shareholder meeting on Wednesday afternoon.

The move would reflect two realities, industry analysts said: That the market for printers and printer ink, long the backbone of HP's business, has a dwindling future, and that HP needs to cut costs somewhere in order to boost spending on research and bring innovation back to the company.

It wouldn't be the first time HP has merged its printer and PC groups. Carly Fiorina did that in 2005, just before the end of her tenure as CEO, but Mark Hurd reversed the decision soon after he replaced her. Hurd reportedly revisited the idea a few years ago but decided against it.

This time it's different, however. When Fiorina made the move, she put the combined division under Joshi. This time, the man who has driven a good part of HP's profits for more than a decade will leave the company, and the head of the PC division will be put in charge.

That could reflect the fact that the humble PC might actually have a brighter future than printers, something that seemed unthinkable seven years ago when IBM had just sold its PC business to Lenovo.

"The problem is, this is just a trailing-edge business," said Endpoint Technologies analyst Roger Kay. "Printer sales are declining, ink sales are declining, people just don't print as much any more."

The iPad and the Kindle have made it easier than ever to read documents electronically, he noted, and technologies that allow people to sign documents electronically, from DocuSign and others, have removed a big hurdle to doing away with the printed page.

"The growth just isn't there, and as HP looked out in the future, I think they're not seeing it there either," Kay said.

Printer ink remains one of the most profitable parts of HP's business, but sales in its Imaging and Printing Group have been declining. They totaled $25.8 billion last year, a billion dollars less than in fiscal 2005. Over the same period, sales at HP's Personal Systems Group increased about 30 percent, to $39.6 billion.

At the same time, HP needs to cut costs, as Whitman made clear on the company's last earnings call. HP has underinvested in innovation, she said, and must spend more money to stay competitive.

That means freeing up money elsewhere in the business, and rolling two big divisions together could help. Printers and PCs share some of the same components, and there is likely to also be overlap in areas such as manufacturing, sales and marketing.

"Todd Bradley has done a fantastic job in creating a more efficient Personal Systems Group, and I think they're looking to him to work some of that magic in the printer division," IDC analyst Crawford Del Prete said.

James Niccolai covers data centers and general technology news for IDG News Service. Follow James on Twitter at @jniccolai. James's e-mail address is james_niccolai@idg.com